Significant changes to the VAT rules on construction services now less than 6 months away – “Reverse Charge” Accounting
On 1 October 2019, HMRC will introduce a significant change to the VAT rules for construction services.
Whilst the actual rate of VAT on construction services is not changing, the accountability is shifting. The responsibility for accounting on the VAT will transfer to the customer under certain circumstances, unless they are regarded as the “end-user.” The purpose of the change is to reduce the level of VAT lost to the Exchequer through fraud in the sector. At present, the HMRC estimates losses of around £100m per annum through VAT fraud. This is often associated with labour providers.
Mark Hetherington, VAT Partner at UNW, offered his insight into the amendments. He stated, “This is a welcome and sensible move, and follows similar changes introduced with VAT rules in other sectors. However, establishing the appropriate VAT rate on construction services is already a confusing task for most businesses in the sector; there are currently three different rates: 0%, 5%, and 20%.
“This task is going to become further complicated from October. By then, a determination on whether the VAT is then charged on an invoice or self-accounted for by the customer will have to be made. It will not be an easy task; however, the new VAT rules are intended to have a degree of symmetry with existing CIS regulations.”
Added to this, the change is likely to bring with it adverse implications for contractors working in the construction sector. This is because the sector often uses VAT as a form of working capital until each VAT return is submitted/paid.
If you would like further guidance on this topic, please do not hesitate to contact one of our dedicated VAT specialists: Mark Hetherington, VAT Partner, on 0191 243 6073 or at firstname.lastname@example.org; or Ian Coulthard, VAT Manager, on 0191 243 6017 or at email@example.com.
In addition, for matters concerning the Construction Industry Scheme (CIS), please contact either Lee Muter, Employment Taxes Partner, on 0191 243 6089 or at firstname.lastname@example.org; or Rebecca Kemp, Employment Taxes Consultant, on 0191 243 6070 or at email@example.com
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